Facebook marketing boom fuels social advertising startup demand

Entrepreneur Michael Lazerow parlayed booming demand for advertising on Facebook and reassurances from its operating chief, Sheryl Sandberg into a business that generates almost $100 million a year in sales.

Lazerow, 37, founded Buddy Media Inc in 2007 to help companies promote their brands on Facebook. Two years later, amid concern that Facebook would put him out of business by replicating his company's services, he called Sandberg.

"Sheryl told me, 'We want you to make a tonne of money. We want to enable you with great technology,'" Lazerow said of the 2009 conversation with Facebook's chief operating officer. "We don't have aspirations to be in the enterprise software business."

Facebook's decision to stay out the way, along with its surge in popularity, have spawned a cottage industry of startups like Buddy Media that help companies peddle their wares and brands on the world's largest social network. Marketers eager to reach Facebook's 845 million users pay fees as high as millions of dollars a year to these software-savvy go-betweens to create pages where customers can get discounts, participate in contests and interact with fellow fans.

"They know the Facebook infrastructure inside and out, and they have developed interesting apps that marketers can tap into so they don't have to reinvent the wheel," said Debra Aho Williamson, an analyst at EMarketer.

The market for social-media management tools will more than double to $970 million in 2016, from $389 million this year. Facebook gave social-media startups a broader range of tools for helping companies reach social media junkies yesterday, announcing its first foray into mobile advertising. Facebook also unveiled features that give businesses more flexibility in posting photos and other content while keeping closer tabs on interaction with customers.

Other social-advertising startups include Wildfire Interactive, Vitrue and Syncapse.

Advertisements are Facebook's lifeblood, making up $3.15 billion in revenue, 85% of the total last year.

Most of those sales are from marketers buying graphical advertisements on the right-hand side of profile pages. Increasingly, these ads direct users to brand pages on the social network, many of which are run by Buddy Media and its like, Lazerow said.